Page 137 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes The price variation may be due to many reasons:
1. The price variance may be due to changes taken place in the structure of competition. The
nature of competition changes due to market potential for example monopoly to duopoly;
duopoly to perfect competition and so on; leads to change in the structure of pricing in
order to retain the consumer base in line with the business.
2. The price variance may be due to two courses of action, which are as follows:
(a) Cost effectiveness strategy, and (b) Distinctiveness Strategy.

Sales Volume Variance

It is one of the elements of sales variance, which is in between the actual sales quantity and
budgeted sales quantity. The variance is normally expressed in terms of price i.e. standard price.
The purpose of expressing the variance in terms of standard price is that price which is free from
market forces.
Sales Volume Variance = Standard Price (Actual Quantity of Sale – Standard Quantity of Sales)
The sales volume variance can be divided into two different streams that sales mix variance and
sales quantity variance/sub-usage variance.
Sales Mix Variance

It is the difference in between the actual sales and standard sales mix. This variance will arise
only due to change in the proportion of goods sold. This is a most important variance usually

computed/calculated, at the moment, the firm which deals more than one commodity.
If both, the standard and actual mixes are equivalent to each other, there will not be any mix
variance in between the above mentioned.
If the mixes are totally different from each other, the sales mix variance is to be computed, through
the development of revised standard mix of quantities with reference to actual quantities sold,
then only the comparison will be meaningful to study the variances occurred in between above
mentioned. The sales mix variance is expressed in between two different quantities and fi nally
should be denominated in terms of standard price. The reason for the expression in terms of
standard price is the price which is totally free from the demand and supply forces of the market.
Sales Mix Variance = Standard Price (Actual Quantity – Revised Standard Quantity)

Sale Sub-usage Variance

It is another component of usage variance, which expresses the deviation in between the revised
standard quantity to the tune of actual quantities sold and the early set standard quantities
expected to sell.
This variance also elucidates the differences of the above mentioned only in terms of standard
price, which is the ideal indicator free from the market forces i.e free from fl uctuation.
Sales Sub-usage Variance = Standard Price (Revised Standard Quantity – Standard Quantity).

Example:

Product Budgeted Actual
Qty Price (`) Qty Price (`)
A 400 30 500 31
B 200 25 100 24
Calculate the various types of sales variances.

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